GE Betz, Inc. v. Michelle Moffitt-Johnston , 885 F.3d 318 ( 2018 )

Case: 15-20008 Document: 00514384957 Page: 1 Date Filed: 03/13/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 15-20008 March 13, 2018
Lyle W. Cayce
Clerk
GE BETZ, INC., doing business as GE Water & Process Technologies,
Plaintiff–Appellant,
v.
MICHELLE MOFFITT-JOHNSTON; AMSPEC SERVICES, L.L.C.,
Defendants–Appellees.
Appeal from the United States District Court
for the Southern District of Texas
Before HIGGINBOTHAM, OWEN, and ELROD, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
GE Betz, doing business as GE Water and Process Technologies (GE),
appeals from the district court’s partial grant of summary judgment and award
of attorneys’ fees in favor of its former employee Michelle Moffitt-Johnston and
AmSpec Services, L.L.C. (AmSpec). We affirm the district court’s judgment in
part but vacate the award of attorneys’ fees.
I
In 2009, after over a decade working for GE and its predecessor,
Moffitt-Johnston became the first head of GE’s distressed fuels team, which
performs “cargo treatments” for other companies. The cargo treatment process
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involves adding chemicals to fuel before export to comply with another
country’s safety, environmental, or regulatory standards.
While employed by GE, Moffitt-Johnston executed an agreement
governing the rights and obligations of GE and Moffitt-Johnston in the event
the employment relationship ended. Among other provisions, the agreement
contained a clause prohibiting Moffitt-Johnston from soliciting GE’s
“customers” or “prospective customers” for 18 months following her
termination or resignation. The agreement defined “customer” as any current
GE customer with whom Moffitt-Johnston had contact or about whom she
learned confidential information during the 18 months preceding her
departure, and defined “prospective customer” as any entity whose business
Moffitt-Johnston had taken certain steps to solicit. Accordingly, the
non-solicitation clause was limited to customers and prospective customers of
GE with whom Moffitt-Johnston actually worked during her employment with
GE. On September 19, 2012, Moffitt-Johnston informed GE that she was
resigning. She agreed to, and did, stay on for approximately one month.
At some point in late 2011 or early 2012, AmSpec decided to enter the
cargo treatment industry. AmSpec had previously served as a third party
inspector for some of GE’s cargo treatments. Shortly after Moffitt-Johnston
informed GE that she was resigning, she spoke with AmSpec about joining the
company to operate its new additives division, which would compete with GE
in providing cargo treatments. By October 11, 2012, Moffitt-Johnston—while
still working for GE—accepted an offer to lead AmSpec’s new division.
Although she advised GE that she would be joining AmSpec, Moffitt-Johnston
did not inform GE, and in fact repeatedly denied, that she would be competing
with GE in her new role. Had she revealed that she would be competing with
GE, GE’s standard practice would have been to deny Moffitt-Johnston access
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to GE’s data network and her employment likely would have been terminated
immediately.
Moffitt-Johnston’s computer activity in the weeks leading up to her
departure was highly suspicious. GE installs monitoring software on the
computers of all GE employees, which captures and logs certain actions taken,
including emails sent and files copied to external hard drives. According to a
report generated by the software on Moffitt-Johnston’s computer (the DLP
report), on September 24, 2012, days after she announced her resignation,
someone using Moffitt-Johnston’s computer downloaded over 27,000 files to an
external hard drive. The circumstances of this download are disputed; Moffitt-
Johnston offered evidence that the download was initiated by GE’s Information
Technology department in the course of backing up her computer, while GE
offered evidence that Moffitt-Johnston was in possession of the computer at
the time of the download and therefore conducted it herself. Subsequently, on
October 9, 2012, another download was attempted to the same external hard
drive but was blocked by exit controls that had been installed on Moffitt-
Johnston’s computer in the interim. The user attempting to the download the
data could have entered a valid business justification that would have allowed
the download to proceed, but instead abandoned the effort. Additionally,
according to the DLP report, in the days prior to her departure, Moffitt-
Johnston sent GE files via email to herself at outside email addresses.
AmSpec’s entry into the cargo treatment market was “effectively
announced” at the October 19, 2012 New York Harbor Show, an annual
industry social event jointly hosted by GE and AmSpec. Having officially left
GE two days prior, Moffitt-Johnston attended the event as a representative of
AmSpec and was observed speaking with at least two GE customers, though
the nature of these conversations is unknown. Over the next year, many of the
customers to whom AmSpec provided cargo treatments had been customers of
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GE to whom GE had provided cargo treatments during the year preceding
Moffitt-Johnston’s departure.
Based on Moffitt-Johnston’s failure to disclose that she would be working
for a competitor, alleged downloads of GE files, and alleged solicitations of GE
customers, GE filed suit against Moffitt-Johnston and AmSpec, asserting 13
causes of action including, relevant here, breach of a covenant not to compete,
misappropriation of trade secrets, and tortious interference with prospective
business relationships. AmSpec and Moffitt-Johnston subsequently moved for
summary judgment with respect to all 13 claims. GE filed a response, and
AmSpec and Moffitt-Johnston moved to strike the DLP report, upon which GE
had relied extensively in its response. The district court granted the motion to
strike, ruling that the DLP report was a summary of evidence and that GE had
not complied with the requirements of Federal Rule of Evidence 1006. The
district court then granted summary judgment in favor of AmSpec and
Moffitt-Johnston as to most of the causes of action alleged.
The case proceeded to trial on the remaining claims—breach of fiduciary
duty, fraud, and unfair competition—limited to allegations that
Moffitt-Johnston concealed her intention to work for a competitor. At trial, the
district court allowed the DLP report to be admitted into evidence. The jury
found liability as to all claims presented to it but awarded no damages.
Subsequently, the district court awarded $217,189 in attorneys’ fees to
Moffitt-Johnston for her defense against the breach of the non-solicitation
agreement claim.
GE appeals the summary judgment the district court granted in favor of
Moffitt-Johnston and AmSpec regarding the non-solicitation agreement and
the district court’s denial of GE’s motion for summary judgment regarding its
claims for breach of a non-solicitation agreement, tortious interference with
prospective business relationships, misappropriation of trade secrets, and
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three related causes of action. GE also appeals the award of attorneys’ fees to
Moffitt-Johnston.
II
With regard to GE’s claim that Moffitt-Johnston breached the
non-competition agreement, the district court concluded, in the alternative,
that GE put forth no evidence of breach. We agree.
GE acknowledges that it has no “smoking gun” that Moffitt-Johnston
solicited any former clients, arguing instead that “an extensive mosaic of facts
. . . establishe[s] a strong circumstantial case.” GE offers four categories of
evidence it believes collectively support an inference that Moffitt-Johnston
solicited former customers of GE while working for AmSpec. This court
“review[s] a grant of summary judgment de novo, applying the same standard
as the district court and viewing the evidence in the light most favorable to the
non-moving party.” 1
First, GE points to the fact that Moffitt-Johnston downloaded over
27,000 GE files prior to departing, many of which contained client information,
then lied about working for a competitor, supporting an inference that her
motive was to “deprive GE of the opportunity to shore up its customer
relationships before she could solicit their business.” The contention that
Moffitt-Johnston must have solicited clients because she allegedly
misappropriated files with their information amounts to speculation.
Second, GE references two incidents it believes constitute solicitations
themselves. Specifically, at the 2012 New York Harbor Show, Moffitt-Johnston
was observed speaking with two GE customers. However, there is no evidence
as to the content of those conversations. While the event’s purpose was
business development, there is evidence in the record that it was also largely
1 Am. Family Life Assur. Co. of Columbus v. Biles, 714 F.3d 887, 895 (5th Cir. 2013).
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a social affair to which spouses and “significant others” were invited for dinner
and a cruise. As the district court observed, the non-solicitation covenant does
not prohibit Moffitt-Johnston from speaking with any former clients; it
prevents her from soliciting them “regarding products or services that are
similar to or competitive with those [she] gained knowledge of while employed
by [GE].” The district court held that GE’s belief that Moffitt-Johnston
solicited customers at the New York Harbor Show is “mere speculation.” With
no evidence that Moffitt-Johnston spoke with the clients at issue about
AmSpec’s services or even anything industry-related during this event, the
district court’s conclusion was correct.
GE also cites evidence suggesting that a representative of one of GE’s
customers, Statoil, had communications with Moffitt-Johnston. GE argues
that it is reasonable to infer from context that they spoke about business
because an employee of this customer later told a GE employee, Kevin Kurtz,
that he would “have to speak to” Moffitt-Johnston first before agreeing to
conduct further business with GE. However, the record contains only Kurtz’s
testimony as to what the GE customer’s employee said. GE did not cite this
testimony when arguing in the district court that Moffitt-Johnston violated the
non-solicitation provision. Had GE done so, the district court undoubtedly
would have ruled, correctly, that Kurtz’s testimony was hearsay. AmSpec had
moved to strike Kurtz’s testimony about this conversation with the GE
employee, and the district court denied the motion on the basis that AmSpec
did “not cite this testimony for the truth of the matter asserted, but rather to
show that the statement was made. It is therefore not hearsay.” GE cannot
rely on this hearsay evidence to support a finding of breach.
In a “see also” reference in its brief in our court, GE cites to a string of
emails in which, shortly after Moffitt-Johnson joined AmSpec, she
communicated with a GE customer, Statoil, with whom she had worked while
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at GE. AmSpec provided cargo treatment services to this customer in
November 2012, and the emails that Moffitt-Johnson sent and received detail
how that treatment was progressing, from the time the vessel was made
available to AmSpec until the conclusion of the treatment process. The non-
solicitation agreement provided that Moffitt-Johnson would not “communicate
. . . with any Customer or Prospective Customer regarding products or services
that are similar to or competitive with those I have gained knowledge of while
employed by [GE].” It would seem that these exchanges might have been a
breach of the non-solicitation agreement. But GE itself states that “it is
unclear what the substance of the conversation was, context indicated it was
business related.” This evidence, without more, is speculative.
Third, GE argues that there is evidence in the record that Moffitt-
Johnston engaged in “subterfuge” to violate the non-solicitation covenant,
including supervising others to solicit GE customers. The covenant not to
solicit provides that Moffitt-Johnston would not “assist another” in
“solicit[ing], call[ing] upon, communicat[ing], attempt[ing] to communicate”
any customer, and the agreement prohibits subterfuge, defined to include
“accompanying others on calls . . . , supervising other persons in soliciting
Customers . . . , [or] providing Confidential Information to others to assist them
in soliciting or serving Customers or Prospective Customers.” GE contends
that Moffitt-Johnston’s interactions and communications with Scott Hagstrom,
violated these provisions. Hagstrom was hired immediately after
Moffitt-Johnston to work as her director of sales. He was also restricted by a
non-competition agreement with his former employer, another provider of
treatment services. When AmSpec sales representatives contacted Hagstrom
with an additives lead, he referred the employee to Moffitt-Johnston if his
non-competition agreement precluded him from pursuing the lead. He
understood that Moffitt-Johnston did the same. Additionally, Hagstrom
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forwarded to Moffitt-Johnston an email chain between himself and
representatives of a GE customer about scheduling an out-of-town meeting and
discussing a potential transaction, which GE contends demonstrated that
Hagstrom “kept Moffitt-Johnston abreast of his solicitation activities.”
This evidence does not raise a triable issue as to whether
Moffitt-Johnston violated the agreement. GE has put forth no evidence tying
referrals between Moffitt-Johnston and Hagstrom to any sale by AmSpec.
Moreover, Moffitt-Johnston is precluded from supervising Hagstrom’s
solicitation of GE’s clients. She is not prohibited from supervising him in
general or from working as a manager for a company with employees who
solicit GE clients, absent some evidence that she directed those solicitation
activities. The fact that Hagstrom forwarded her an email reflecting his
activities for their common employer is not evidence of a violation.
Fourth, GE offers evidence “relating to AmSpec’s immediate success in
the cargo-treatment arena,” referencing the fact that AmSpec made sales to
certain GE customers soon after establishing its competing business and
within a short time after the New York Harbor Show. However, the fact that
AmSpec was quickly able to compete with GE is not evidence that
Moffitt-Johnston solicited clients she was not permitted to solicit, especially in
light of the fact that AmSpec had previously done inspection work for those
same clients and therefore had existing relationships.
Although GE contends that these four categories of evidence, considered
together, raise an inference that Moffitt-Johnston violated the non-solicitation
covenant, none amount to more than speculation. Considered collectively, GE’s
evidence is not enough to raise a triable issue as to whether Moffitt-Johnston
solicited any former GE customers, whether she directed solicitation of former
GE customers, or whether improper conduct led to any sales by AmSpec. The
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district court correctly held that there was no evidence that the non-solicitation
agreement was breached.
III
The district court also granted summary judgment in favor of
Moffitt-Johnston and AmSpec on GE’s misappropriation-of-trade-secrets
claim. As a threshold matter, GE acknowledges that its misappropriation
claim largely depends on the admissibility of the DLP report, which the district
court excluded from the summary judgment record. We assume, without
deciding, that the district court’s exclusion was an abuse of discretion, and
proceed with the analysis of this claim on the premise that the DLP report was
admissible.
To prevail on a misappropriation of trade secrets claim, “a plaintiff must
show that (1) a trade secret existed, (2) the trade secret was acquired through
a breach of a confidential relationship or discovered by improper means, and
(3) the defendant used the trade secret without authorization from the
plaintiff.” 2 Moffitt-Johnston and AmSpec do not contest that some of the
information allegedly misappropriated could constitute trade secrets. The
district court granted summary judgment on the second and third elements of
the claim. We conclude that its decision was proper with respect to the use
element.
“A cause of action for misappropriation of trade secrets accrues when the
trade secret is actually used.” 3 “As a general matter, any exploitation of the
trade secret that is likely to result in injury to the trade secret owner or
2 CQ, Inc. v. TXU Min. Co., 565 F.3d 268, 273 (5th Cir. 2009) (quoting Gaia Techs. Inc.
v. Recycled Prods. Corp., 175 F.3d 365, 376 (5th Cir. 1999)) (emphasis in original).
3 Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444, 450 (5th Cir. 2007) (quoting
Comput. Assocs. Int’l v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996)) (emphasis in original).
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enrichment to the defendant is a ‘use.’” 4 However, “[p]roof of trade secret
misappropriation often depends upon circumstantial evidence.” 5
GE’s allegation that Moffitt-Johnston used the trade secrets at issue is
based on circumstantial evidence. Specifically, GE alleges that the following
facts and circumstances, in combination, support a reasonable inference that
Moffitt-Johnston used GE’s trade secrets: “(1) Moffitt-Johnston created a
[business] plan to sacrifice profit margin in order to gain market share;
(2) Moffitt-Johnston emailed GE’s most recent financial data to her AmSpec
email account on her last day at GE [and downloaded 27,000 GE files in a
deceptive manner]; [and] (3) AmSpec had success with the very clients whose
financial data Moffitt-Johnston had just sent.”
The “business plan” referenced by GE is a one-page draft plan prepared
by Moffitt-Johnston for an interview with AmSpec, prior to being hired. GE
points to the fact that the business plan projects lower margins in Moffitt-
Johnston’s first two years on the job and notes, apparently as a goal and
without any elaboration, “Get Market Share.” According to GE, from this
business plan, “[i]t was reasonable to infer that Moffitt-Johnston used
knowledge of GE’s cost structure in order to acquire that market share.” But
attempting to acquire market share, even in part through lower margins, is a
natural goal for a business in its infancy, and it would be unreasonable to infer
from this broadly stated objective that Moffitt-Johnston planned to use GE’s
trade secrets at the time she interviewed with AmSpec—much less that she
ultimately did so. The business plan contains no information suggesting that
Moffitt-Johnston intended to capitalize on her knowledge of GE’s cost
4 Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 877 (5th Cir. 2013) (alteration
omitted).
5 Sw. Energy Prod. Co. v. Berry-Helfand, 411 S.W.3d 581, 598 (Tex. App.—Tyler 2013)
rev’d on other grounds, 491 S.W.3d 699 (Tex. 2016).
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structure. GE contends that it “submitted AmSpec’s financial data to buttress
that inference.” But it is unclear what conclusions GE asks the court to draw
from AmSpec’s raw financial data, as GE does not explain how the data
compares to its own, how it “buttress[es]” the inference that GE’s confidential
information was used to “gain market share,” or anything else.
With respect to the fact that AmSpec enjoyed success with clients whose
information Moffitt-Johnston allegedly misappropriated, it would likewise be
unreasonable to infer from such success that AmSpec and Moffitt-Johnston
used GE’s trade secrets. The mere fact of AmSpec’s ability to compete does not
itself suggest that AmSpec did so by misappropriating trade secrets. GE does
not explain or present any evidence of how, and to what degree, AmSpec
obtained business from former GE clients, just that “many” of AmSpec’s sales
“are to customers that GE sold cargo treatments to within the twelve months
prior to [Moffitt-Johnston’s] departure.” Once again, the fact that GE
submitted AmSpec’s raw data, without any explication as to how the data
compares to that of GE, does not support an inference that AmSpec’s ability to
obtain sales from customers with whom GE has worked is a result of using
GE’s trade secrets. In any event, AmSpec had previously worked with the
customers at issue in its capacity as an inspector, so the relationships were not
entirely new.
With respect to evidence as to the circumstances under which
Moffitt-Johnston allegedly obtained the trade secrets (through a download of
data and emails to herself on the eve of her departure), GE asks the court to
collapse the improper-acquisition prong and the use prong of the
misappropriation of trade secrets cause of action. As support for this analytical
step, GE cites only to an unpublished case from a Texas court of appeals
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reviewing the trial court’s ruling with great deference. 6 But there is no
evidence of actual use.
Accordingly, we affirm the district court’s grant of summary judgment
on the misappropriation of trade secrets claim, as well as the claims for illegal
use of confidential information and breach of a common-law duty with respect
to confidential information, which track the misappropriation claim.
Separately, GE asserts in a footnote that if we rule that the DLP report
is admissible (as we have assumed for the sake of argument), we should reverse
the grant of partial summary judgment on GE’s breach of fiduciary duty claim
with respect to allegations that Moffitt-Johnston stole GE’s files. However, a
claim for breach of fiduciary duty requires an injury to the plaintiff or a benefit
to the defendant. 7 For the same reasons GE has not established that
Moffitt-Johnston or AmSpec actually used the trade secrets or that GE suffered
any injury, it cannot establish a breach of fiduciary duty claim based on the
misappropriation. GE also asserts, in the same footnote, that the DLP report’s
admissibility compels the reversal of the district court’s grant of summary
judgment on GE’s claim that AmSpec tortiously interfered with Moffitt-
Johnston’s employment agreement with GE. However, as the district court
correctly concluded, even if Moffitt-Johnston committed wrongdoing, GE has
offered no evidence that AmSpec was involved.
6 See Molina v. Air Starter Components, Inc., No. 01-03-00175-CV, 2004 WL 1277491,
at *4 (Tex. App.—Houston [1st Dist.] June 10, 2004, pet. denied) (mem. op.) (“[T]he inferences
to be drawn from the . . . circumstances surrounding how the box was taken . . . , when
viewed in support of the trial court’s ruling, rationally support the trial court’s conclusion
that Molina had someone take the contents in the box from Air Starter so that he could
reproduce Air Starter’s product.”).
7 Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277, 283 (5th Cir. 2007).
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IV
The district court also granted summary judgment on GE’s
tortious-interference-with-prospective-business-relationships claim, which
alleges that Moffitt-Johnston and AmSpec wrongfully interfered with GE’s
customer relationships. To establish a claim for tortious interference with
prospective business relationships, a plaintiff must set forth evidence that:
(1) there was a reasonable probability that the parties would have
entered into a business relationship; (2) the defendant committed
an independently tortious or unlawful act that prevented the
relationship from occurring; (3) the defendant either acted with a
conscious desire to prevent the relationship from occurring or
knew the interference was certain or substantially certain to occur
as a result of the conduct; and (4) the plaintiff suffered actual harm
or damages as a result of the defendant’s interference. 8
Here, the only “independently tortious or unlawful act” alleged by GE is
Moffitt-Johnston’s breach of the non-solicitation agreement. As we have
already concluded, there is no evidence that Moffitt-Johnston breached the
non-solicitation agreement. 9 Accordingly, even if GE can establish a
reasonable probability of entering into a business relationship with which
Moffitt-Johnston and AmSpec interfered, its tortious interference claim fails.
V
The district court concluded that the non-solicitation agreement was
unenforceable and awarded Moffitt-Johnston attorneys’ fees incurred in
defending against GE’s claim that she breached that agreement.
Enforceability of a non-solicitation agreement is governed by the Covenants
8 Richardson-Eagle, Inc. v. William M. Mercer, Inc., 213 S.W.3d 469, 475 (Tex. App.—
Houston [1st Dist.] 2006, pet. denied).
9 See supra Part III.
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Not to Compete Act, Texas Business and Commerce Code § 15.50. 10 Under the
Act,
a covenant not to compete is enforceable if it is ancillary to or part
of an otherwise enforceable agreement at the time the agreement
is made to the extent that it contains limitations as to time,
geographical area, and scope of activity to be restrained that are
reasonable and do not impose a greater restraint than is necessary
to protect the goodwill or other business interest of the promisee. 11
The parties do not dispute that the non-solicitation agreement was
ancillary to an otherwise enforceable agreement, and Moffitt-Johnston has not
challenged the eighteen-month duration of restraint. The parties joined issue
on whether the agreement contains “reasonable” limitations as to geographical
area and the scope of the activity restrained, and whether the agreement
imposes a greater restraint than necessary to protect GE’s “goodwill or other
business interests.”
The terms of the non-solicitation agreement between Moffitt-Johnston
and GE are set forth in the margin. 12 Though there are geographical
10 TEX. BUS. & COM. CODE § 15.50(a).
11 Id.
12 The agreement provides, in part:
I acknowledge that, as a practical matter, it would not be possible for
me to compete with the Company for Customers without making use of the
Company’s Confidential Information and its relationships with its customers.
In order for the Company to protect such information and relationships, if I am
employed by the Company in a position where I am evaluated based on my
effectiveness at securing new customers, servicing customers, or retaining
existing customers including, but not limited to, marketing, sales, channel
distribution, field service, sales of global corporate accounts, or sales
management, or in a position where I supervise other Company employees in
performing such activities, then for the eighteen (18) consecutive calendar
months immediately following termination/resignation of my employment with
the Company i[r]regardless of the reason for such termination, I shall not
directly or indirectly, for my benefit or the benefit of any other person or entity,
solicit, call upon, communicate, or attempt to communicate, or assist another
in doing so, with any Customer or Prospective Customer regarding products or
services that are similar to or competitive with those I have gained knowledge
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limitations if Moffitt-Johnston was employed in Louisiana or South Dakota,
the parties do not contend that she was employed in either of those states, and
the non-solicitation provision does not expressly set forth a geographical area
in which Moffitt-Johnston was prohibited from soliciting with regard to GE’s
Customers or Prospective Customers in other areas.
However, because it is unnecessary to decide if the non-solicitation
agreement was enforceable in resolving the attorneys’ fee issue, we will
assume, without deciding, that the non-solicitation agreement was
unenforceable. Under Texas Business & Commerce Code § 15.51(c), a court
may award attorneys’ fees to an employee who is sued by a former employer
under a covenant not to compete or non-solicitation agreement if the employee
(1) “establishes that the [employer] knew at the time of the execution of the
agreement that the covenant did not contain limitations as to time,
geographical area, and scope of activity to be restrained that were reasonable
and the limitations imposed a greater restraint than necessary to protect the
goodwill or other business interest of the [employer],” 13 and (2) “the [employer]
of while employed by the Company. I will not engage in any subterfuge to
circumvent this prohibition, including accompanying others on calls to
Customers or Prospective Customers, contacting Customers or Prospective
Customers with other persons, supervising other persons in soliciting
Customers or Prospective Customers, providing Confidential Information to
others to assist them in soliciting or serving Customers or Prospective
Customers, participating in developing presentations to be made to Customers
or Prospective Customers, or other similar activities. If I am employed by the
Company in Louisiana or South Dakota, I agree not to engage in the foregoing
activities with respect to any Customer or Prospective Customer during the
restricted period in any county or parish in which I solicited or served the
Customer or Prospective Customer on behalf of the Company. If I am employed
by the Company in Louisiana or South Dakota I acknowledge that I may
request confirmation by the Company at any time of the parishes or counties
in which the Customers or Prospective Customers are based and as to which
the prohibitions of this paragraph shall apply.
13 TEX. BUS. & COM. CODE § 15.51(c).
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sought to enforce the covenant to a greater extent than was necessary to
protect the goodwill or other business interest of the [employer].” 14
Moffitt-Johnston bore the burden of proof as to both of these
prerequisites but failed to carry that burden. As GE asserted in the district
court, in its opposition to Moffitt-Johnston’s motion for attorneys’ fees, and
maintains in this court, there is no evidence that GE knew, “at the time of the
execution of the agreement,” that the non-solicitation agreement was
unreasonable, assuming that it was.
Moffitt-Johnston argues that counsel for GE admitted in the district
court that the non-solicitation agreement was “completely devoid of any
geographic limitations.” However, under Texas law, covenants not to compete
and non-solicitation agreements are not void or unenforceable simply because
they lack an express geographic limitation. Citing decisions of the Texas courts
of appeals, the district court correctly concluded that “[i]n the absence of an
explicit geographic scope, ‘[a] number of courts have held that a non-compete
covenant that is limited to the employee’s clients is a reasonable alternative to
a geographical limit.’” 15 Accordingly, notwithstanding the text of § 15.50(a), a
non-solicitation agreement may be enforceable under Texas law even if it does
not expressly contain geographical limits. 16
Moffitt-Johnston relies on the testimony of two GE employees, but
neither had actual knowledge of the non-solicitation agreement’s terms until
14 Id.; see also Sentinel Integrity Sols., Inc. v. Mistras Grp., Inc., 414 S.W.3d 911, 924
(Tex. App.—Houston [1st Dist.] 2013, pet. denied).
15 GE Betz Inc. v. Moffitt-Johnston, No. H-13-0459, 2014 WL 12596523, slip op. at *8
(S.D. Tex. June 6, 2014) (quoting Gallagher Healthcare Ins. Servs. v. Vogelsang, 312 S.W.3d
640, 654 (Tex. App.—Houston [1st Dist.] 2009, pet. denied)); see Vogelsang, 312. S.W.3d at
654-55 (collecting cases).
16 See Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 657 (Tex. 2006)
(holding that a covenant not to compete was reasonable even though the covenant’s
restrictions applied regardless of geographic location).
16
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No. 15-20008
this litigation arose, and neither was designated as GE’s corporate
representative as to the state of GE’s knowledge when Moffitt-Johnston and
GE consummated the agreement. One of these witnesses testified that she did
not know what GE meant when the agreement was drafted, and her opinion
that the agreement was customer-specific “irrespective of geography” was
based on her lay understanding of the agreement when she was asked to read
it, for the first time, during her deposition. The other GE employee testified
that he did not know if the agreement contained any geographic limitations.
Moffitt-Johnston argued that GE’s counsel took the position in the
district court that there was an implied geographic limitation in the agreement
but then took inconsistent positions as to what those restrictions were.
Moffitt-Johnston points out that at one point GE’s counsel argued that the
implied limitation was the United States, Canada, North America and
Panama, but that counsel subsequently directed Kurtz, a GE employee, to
compile a list of customers that would come within the agreement. Kurtz
included 20 GE customers on this list, based on hearsay, as discussed above.
But none of this is evidence that at the time GE and Moffitt-Johnston executed
the non-solicitation agreement, GE knew that it was unreasonable.
Though there is no evidence that GE actually (subjectively) knew when
it signed the agreement that it was unreasonable (again, assuming that it was),
Moffitt-Johnston contends that GE must have known at the time that the
agreement was executed that it was unreasonable because, she asserts, the
definitions of “Customer” and “Prospective Customer” are not limited to
individuals with whom she actually worked and accordingly, the agreement is
overly broad. The GE Employment and Confidential Information agreement,
which includes the non-solicitation provisions, defines “Customer” and
17
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No. 15-20008
“Prospective Customer.” 17 “Customer” is defined in terms of a customer of GE
with whom Moffitt-Johnston had contacts of a specified character. The district
court concluded that “Customer” could be construed to include a multi-national
corporation and therefore, that Moffitt-Johnston would have been prohibited
from soliciting business at refineries or locations other than those with whom
she had actual contact or involvement while at GE. We think it unreasonable
to read the definition of “Customer” so broadly. The agreement instead
connotes that in order to have been a “Customer,” there must have been actual
communication or contact between “the Customer” and Moffitt-Johnston that
concerned provision or the potential provision of a service or product.
Employees of a multi-national corporation with whom Moffitt-Johnston had no
contact, and who worked in a refinery with which Moffitt-Johnston had done
no business, would not qualify as a “Customer” because the requisite nexus of
contact for the purpose of transactions could not exist. This is reinforced by
the descriptions of those whom “Customer” included: “representatives of the
17 The terms are defined as follows:
“Customer.” The term “Customer” refers to any current customer of the
Company, including representatives of the customer, key decision-makers for
the customer, plant managers, purchasing agents, technical representatives,
or any other employee or consultant providing services for the customer, with
whom I had any contact or communication or about whom I developed,
received, or learned Confidential Information during the eighteen (18)
consecutive calendar months preceding termination of my employment with
the Company if such contact or communication was with a view to or for the
purpose of selling, offering for sale, influencing the purchase of, or otherwise
providing any product, service or equipment competitive with any product,
service, or equipment sold, offered for sale, provided, or under development by
the Company.
“Prospective Customer.” The term “Prospective Customer” refers to all
entities (i) for whom I have assisted in the Company in making a written
proposal within the twelve (12) calendar months preceding termination of my
employment with the Company, or (ii) for whom [I] have made at least two (2)
prospect calls during the twelve (12) calendar months preceding termination
of my employment with the Company.
18
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No. 15-20008
customer, key decision-makers for the customer, plant managers, purchasing
agents, technical representatives, or any other employee or consultant
providing services for the customer, with whom I had any contact or
communication or about whom I [Moffitt-Johnston] developed, received, or
learned Confidential Information.” Similarly, the term “Prospective
Customer” is defined with reference to Moffitt-Johnston’s personal
involvement while employed by GE.
The parties have not cited, and we have not found, a Texas court decision
that resolves whether the knowledge component of Texas Business &
Commerce Code § 15.51(a) is a subjective one, requiring actual knowledge, or
whether the fact that an employer “knew at the time of the execution of the
agreement” that the covenant was unreasonable can be imputed by showing
that objectively, a reasonable person would know, based on Texas law, that the
agreement was unreasonable. Even assuming, without deciding, that
knowledge of Texas law as it existed when the agreement was signed is
imputed to GE, it is not clear that under Texas law, the definitions of
“Customer” and “Prospective Customer” are overly broad. We cannot say that
any reasonable person who read the covenant would or should have known that
it was unreasonable. Indeed, a Texas court has found a similar provision to be
reasonable, though the challenges to the clause in that case were arguably
different. 18
18 See Alex Sheshunoff Mgmt. Servs., 209 S.W.3d at 656-57 (rejecting the contention
that the agreement was overly broad because “its restriction on [the employee’s] solicitation
of certain of [the employer’s] prospective clients and ‘affiliation members’ is unrelated to any
training or confidential information [the employer] provided [the employee] after he signed
the employment agreement,” and concluding that the following covenant “was reasonable,”:
Employee will not
(i) directly or indirectly, as an owner, employee, independent
contractor or otherwise, provide consulting services to banks,
savings and loans or other financial institutions where the
19
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No. 15-20008
We note, however, that GE advocated positions in the district court that
may have influenced the court in reaching the conclusion that the
non-solicitation agreement was overly broad and therefore unreasonable. GE
offered the affidavit of its employee Kevin Kurtz, which listed 20 names and
opined that each fell within the definition of “Customer” or “Prospective
Customer.” Many were short-hand identifiers of nationally- and
internationally-known names such as “Exxon Mobil.” The district court
excluded this affidavit, however, because it was not based on personal
knowledge, and it is not evidence in the case. Most of the names in Kurtz’s
affidavits do not appear to identify an actual corporate entity because those
names are not followed by “Inc.” or “Corp.” or similar indicia of a corporate
entity. While this is evidence that GE sought to enforce the agreement to a
greater extent than was necessary to protect the goodwill or its other business
interest, it is not evidence that GE knew at the time of the execution of the
agreement that the restraints in the non-solicitation agreement were
unreasonable.
GE presented evidence to the district court that prior to the time that
the agreement with Moffitt-Johnston was reached, a court in North Carolina
had enforced GE non-solicitation agreements identical to the one in Moffitt-
Johnston’s contract. That decision was upheld on appeal, 19 though after the
Employee has provided fee based services in excess of 40 hours
within the last year of employment, or with which Employee has
conducted significant sales activity, including, but not limited to,
more than one sales call, preparation of a sales proposal and
actual sales, within the last year of employment. This restriction
applies regardless of geographic location, it being acknowledged
by the parties that Employer's clients are not confined to a
particular geographic area;
(ii) solicit or aid any other party in soliciting any affiliation member
or previously identified prospective client or affiliation
member. . . .)
19 GE Betz, Inc. v. Conrad, 752 S.E.2d 634 (N.C. App. 2013).
20
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No. 15-20008
date of the agreement at issue in the present case. The North Carolina court
of appeals rejected the argument that the non-solicitation agreements were
overly broad and against North Carolina public policy. 20 The court reasoned
that the agreements “did not exceed the scope necessary to protect GE’s
business.” 21 We reference these decisions, not for any legal proposition, but as
some evidence that GE had reason to think that the non-solicitation provisions
were not overly broad.
Because there was no evidence that when GE executed the
non-solicitation agreement with Moffitt-Johnston, GE knew the covenant was
unreasonable, Moffitt-Johnston has not met the requirements of Texas
Business and Commerce Code § 15.51(c). Therefore, she was not entitled to
recover attorneys’ fees.
* * *
For the reasons set forth above, we AFFIRM the district court’s judgment
in part and VACATE the award of attorneys’ fees.
20 Id. at 645.
21 Id.
21